What do the proposed changes to the R&D tax incentive mean for startups and businesses that invest in R&D? Find out more about the Federal Government’s plans.
EOFY 2020: The year of financial hygiene for businesses
It rolls around every year but EOFY 2020 is a little different. Here’s what you need to know for your startup or SME.
If the thought of EOFY (end of financial year) makes you yawn, you’re not alone. Even we find it a bit boring and we’re accountants, though not your average ones as you’ll hopefully see below.
Most years, our advice is pretty much the same. But we all know there’s nothing ‘same’ about this year so we’ve put together this EOFY 2020 explainer.
Quick disclaimer: This article is not personal tax or financial advice – you’d need to speak to us for that.
Okay, hit me with the usual advice
Probably no one has ever said that BUT it’s worth knowing this advice. As end of financial year approaches, our mantra is pretty simple: Push out revenue. Bring forward expenses.
That’s the main way to minimise tax for your business. It means:
- Hold off on invoicing if you can, pushing revenue past 30 June and reducing your taxable income
- Pay any invoices you can, even prepay things like rent, subscriptions, utility bills if possible (we know this might be very unlikely this year though)
- And if you were planning to buy equipment or other business assets after 30 June, bring that forward if possible so you can claim tax on the purchase
This doesn’t mean going out and buying a new car just because you want one. But it could mean bringing forward a planned purchase of a delivery vehicle for example, if that makes sense for your business.
Changes to the instant asset write-off
Since the coronavirus took over our economy, the Federal Government has announced some changes to the instant asset write-off rules.
Basically, if you buy an eligible new or used asset worth up to $150,000 before 31 December 2020, it can be an instant tax write off (increased from the previous $30,000 per asset limit and the previous 30 June deadline). Note that for cars, the limit is still $57,000 while other work vehicles can be worth up to $150,000.
As always, it’s not a good idea to buy assets for the sake of it. It’s only tax and cost-efficient in the long run if it’s something you actually need. You might also need to back up any short-term cash requirements with extra vehicle or asset financing through your bank. And don’t forget to check the list of assets that don’t qualify for the instant write off.
Your hands are clean, but are your finances?
Also something that probably hasn’t been said. But if ever there was a year for financial hygiene, it would be this one.
Why? Two reasons.
We’ll start with number #2, which is that the ATO will likely never be more supportive. Given the economic environment we’re all operating in, the ATO has taken the unusual step of asking businesses affected by the coronavirus to get in touch to discuss tax relief options.
This support includes:
- Remitting any interest and penalties incurred on or after 23 January 2020, that have been applied to existing tax liabilities
- The ATO has made it clear they are open to discussions about existing and upcoming company tax debts, including working with companies to enter extended repayment terms with low or even no interest payment plans
The bottom line is, there’s never been a better time to sort out any tax debts or overdue returns.
But this support is not automatic. The ATO recommends calling its Emergency Support Infoline on 1800 806 218 to discuss your situation and how they can help. We recommend getting your accountant to do it.
Reason #1 for financial hygiene in EOFY 2020
It comes down to cash. Cashflow is a common pain point for startups and SMEs. This year even more so which means we’re working with many clients to secure bank loans and other forms of finance and funding.
And the bottom line here is that reliable lenders and funders want to see that your finances are in order. They don’t want to see any missing tax returns or tax debts without a plan in place. In a climate of many businesses needing their funds, they’re likely to steer clear of those with poor financial hygiene.
Get your R&D cash back (or forward)
Speaking of cash, EOFY 2020 means it’s also time to get your R&D tax incentive claim underway if you’re eligible. The sooner you get it in, the sooner you can get the cash back.
In case you don’t know what it is, the R&D tax incentive can provide up to 43.5% of your development costs back as a cash refund through the tax process each year. It can apply to many different businesses from software startups to engineering, as long as you meet the eligibility requirements. You can read more about these here.
This year there’s a twist. The deadline for the R&D tax incentive for the 2018-19 year has been extended from 30 April to 30 September 2020 so if you missed that boat, you can still jump on it. And you can also get your claim in for the 2019-20 financial year ASAP too.
If you need the cash back sooner than the tax process can provide, there’s also the option of R&D forward funding, which is when a specialist financier like Radium Capital who we work with, lends you your expected R&D refund in advance and you pay it back when the ATO pays you.
Financial support (to export)
The Export Market Development Grant (EMDG) is not new but this year, the government has put more money into it to help support businesses exporting overseas or planning to.
The EMDG can reimburse you for up to 50% of eligible export promotion expenses, above $5000 and capped at $150,000 annually.
There’s a bit more to it, including that it’s paid out in stages, which is where the extra government funding this year helps. Usually, if your business is eligible you’ll get an initial payment and then a second payment of anywhere between 25-75% of what you’re eligible for, determined by the remaining funds in the grant pool.
So with more funding in the pool for 2019-20, eligible businesses should see larger reimbursements. This is for eligible export promotion expenses you’ve incurred in the 2019-20 financial year, and if that’s the first year you apply, you can also claim for the previous year too.
Make working from home pay you
Finally, we’d be remiss not to mention the working from home tax allowance for EOFY 2020, due to COVID-19.
Normally, if you work from home for some or all of the time, you can claim certain expenses (or a portion of them) in your individual annual tax return.
With so many more people working from home at the moment, the ATO has announced a shortcut method to allow you to claim these expenses more easily.
You can still use the other methods outlined here or – and this is what we think most people will do – you can use the shortcut of claiming 80 cents per hour worked at home between 1 March and 30 June 2020.
There are a few conditions, including:
- You need to keep a record of the hours worked from home (e.g. timesheets, rosters or a diary)
- You’re not just carrying out minimal tasks like occasionally checking emails or taking calls
- You are incurring additional expenses due to working from home
What if your home is your place of business? This is different again and the key is that you need to have a separate entrance for your business in order to claim the relevant tax deductions. This is definitely one to talk to your accountant about.
The end of another EOFY post
Well done. If you made it this far you’re on track to make 2020 the year you gained, or retained, financial hygiene.
And if that’s not a good note to end on, we don’t know what is (except perhaps a reminder that this isn’t personal tax or financial advice – you’d need to speak to us for that).
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It rolls around every year but EOFY 2020 is a little different. Here’s what you need to know for your startup or SME. Spoiler: It’s about financial hygiene.
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